The industrial shaves off growth to second quarter GDP

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Part of the decline in mineral sales has been attributed to the problems with the ports and railway lines that are in disrepair. Photo: Image: Getty
Part of the decline in mineral sales has been attributed to the problems with the ports and railway lines that are in disrepair. Photo: Image: Getty

BUSINESS


Mining production was down 8.0% year on year in June, while mineral sales were also down 6.1% over the same period.

Leading the declines were gold miners, who saw a drop of 28.6% and contributed 4.7 percentage points to the overall number. Platinum Group Metals (PGMs) production also weighed on the sector slipping 9.8% and coal dropping 6%.

Part of the decline in mineral sales has been attributed to the problems with the ports and railway lines that are in disrepair.

PGMs sales saw the biggest losses in June, partly because of a drop in the demand for internal combustion vehicles that are being replaced by electric vehicles.

READ: Farmers threaten Eskom with lawsuit over load shedding 

Senior FNB economist Thanda Sithole said mining production was negatively impaired by a variety of factors: “From persistent power supply shortages, higher production costs, labour unrest and infrastructure bottlenecks (ports and rails network).

“Moderating global growth in South Africa’s major trading partners implies that the external trade environment is less favourable for commodity export volumes.”

Sithole added export earnings from the mining sector were likely to come under pressure at some point, despite a 4.3% increase in June’s 2021 figures.

“The US dollar price of South Africa’s major commodity exports is lower by 1.0% YTD [year to date] compared to the corresponding period last year.” Sithole said:

Geopolitical tensions and elevated global recession risk remain a crucial concern for South Africa’s commodity export volumes and earnings.

Meanwhile, production in the manufacturing industry also slipped 3.5% in June when compared with the same period last year.

Motor vehicles, parts and accessories, and other transport equipment contributed 1.8 percentage points to the overall drop, while food and beverages production was down 3.8%.

Basic iron and steel, non-ferrous metal products, metal products and machinery were down 2.9%.

These declines have been attributed to floods that swept through KwaZulu-Natal earlier this year and shortages in electricity supply.

Investec’s chief economist Annabel Bishop said the declines in the country’s industrial sector would have taken away from economic growth in the three months to June.

She said: “Industrial production contracted in the second quarter by 4.4% year on year (seasonally adjusted), heralding sharp downwards pressure on the GDP.

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We expect the GDP to contract by -0.8% quarter on quarter, seasonally adjusted in quarter two, following the damaging load shedding and the KwaZulu-Natal floods.”

She added South Africa operated in waning global demand for items like precious metals.

“Global growth forecasts were revised lower in the second quarter of the year, negatively affecting metals, as risk-off permeated financial markets, worsened by the severe Covid-19 lockdown restrictions in China on its economic activity, with March the high in metals’ prices this year,” she said.

On the local front, business confidence picked up in July, with businesses returning to some level of normality, following the effects of the Covid-19 pandemic and the KwaZulu-Natal floods on business sentiment.

The South African Chamber of Commerce and Industry’s (Sacci) business confidence index rose by 1.8 index points to 110.3 points in July.

This was 2.6 points higher when compared with the same period last year. Sacci rebased the index to 2020, starting the benchmark at 100 index points.

Sacci said increased inflation, a weaker and volatile rand exchange rate and higher real interest rates weighed negatively on the business environment.

Sacci economist Richard Downing noted that global economic growth remained under pressure because of rising inflation and disruptions in global supply chains. Downing said:

You cannot have economic growth if you have huge price instability.

“It’s very difficult to transact in an economy where inflation is rampant. We must act against inflation.”


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